Investing in farm & land is often a long term plan with set goals in mind. Objectives can include buy and flip with short term capital gains. Often it is not attractive for tax strategies unless its involves tax planning with farm tax experts. Taxes will have a great effect on after tax net income and should be part of investment planning in farm/land.

Long term investments with solid income owning, operating or renting the land is general very stable and can provide great value with increased land values providing wealth accumulation for many years. No taxes are paid on the appreciation till the land sells creating many years of appreciation on the investment without taxing the core investment and appreciation. It can enhance investment portfolio’s for many small or medium investors to add land in their overall investment strategy in consultation with tax planners.

One of the great opportunities in farming is equity investing, that means taking an equity position (shares or part ownership) in farm land, farm operations or farm business to participate without taking on the whole project. This may be great for investors, although caution should be given to making sure you have the right advisers ensuring legal, tax and investment strategies.

Often the question arises what income can i receive from land/farm investments. Most of the time the answer would be it varies. A solid annual return can yield 3-5% and land appreciation would ensure increased added value, varying 5-7% annual on farm land. There would be less annual return for land near large population centers and likely increased appreciation. The reverse would be in outlaying areas where higher annual returns can be achieved and the appreciation would be typical lower than near urban centers.

Farmland continued steady climb,

Whether it means paying a higher price for land that has potential to be more productive or buying in blocks to improve the efficiency of their operations, producers are sharpening their pencils with an eye on variable commodity prices.

The average value of Canadian farmland increased 6.6% in 2018, following a gain of 8.4% in 2017.

If you’re looking for a good investment opportunity, you might not have to look much further than the ground beneath your feet.

Land, especially in a country as expansive and diverse as the United States, has always been a strong pull among real estate investors—and its popularity continues to grow. According to the 2017 REALTORS Land Institute Land Markets Survey, there was a 5% increase in land purchases from investors between 2015 and 2016. U.S. investors now make up 25% of all land purchasers in the country, second only to individuals and families.

Real estate investor Louis Glickman once famously remarked that “the best investment on earth is earth.” And it’s a sentiment that holds true today. Here are three reasons why.

1. It doesn’t depreciate

Land you purchase can certainly decrease in value, which is a risk you take when you make any investment. But in the pure accounting sense, land doesn’t suffer from inherent depreciation the way that other types of assets do. Depreciation refers to uncontrollable value loss that happens as an asset ages and gets worn out. Land, however, doesn’t get worn out as it gets older.

In a report on property depreciation, the Internal Revenue Service stated that land doesn’t depreciate because it doesn’t have a determinable usable life. This is good news for investors, who often make cheap land investments in the hope that local advancements over time will increase their property’s value. So take your time and wait to find that perfect buyer—you don’t have to worry that your land will depreciate while you do. Speaking of….

2. It’s inexpensive to hold onto long term

There isn’t much capital that goes into maintaining a land investment once it’s been purchased. Maintenance and general upkeep is usually minimal, as are property taxes. And depending on how the land is financed, there may not even be any mortgage payments to deal with. This is good news for investors, as it allows them to essentially “set it and forget it,” picking up well-priced properties and holding on to them until the right sale opportunity comes along. And because it’s a non-depreciating asset, there aren’t any hidden costs either to holding onto a land investment long term.

3. Agricultural land prices are increasing

The world needs farmers, and farmers need land. And fortunately for land investors, agricultural land in the U.S. has been on a steady incline. The USDA’s 2018 Land Values Summary report noted big gains on cost per acre of various types of farming land. From 2017 to 2018, cropland increased to $4,130 an acre (a $40/acre gain) and pastureland increased to $1,390 an acre (also a $40/acre gain). Farm real estate that includes land and structures increased to $3,140 an acre (a $60/acre gain).

While the U.S. has plenty of agricultural land for sale, there is still only so much to go around. Banking on the value of farm land has been—and continues to be—a strong opportunity for investors, especially those who focus on the Corn Belt Region where agricultural land sale prices are usually the highest.

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In the past land prices and income have been always linked, if farmers make more money they can afford higher prices for land or rent.

Now economics of scale are shifting some investments in farmland for farmers that have low operating cost or better margins that are competing for rental land bringing in higher returns for Investors resulting in higher land prices and land becoming uneconomical for higher cost/lower margin farms and they may not be able to compete leaving them unable to compete to purchase land or rent land.

Larger farms & younger well educated farmers seem to take advantage of scale & margins in farming that gives them an edge in economics to create better operating margins and be very competitive in purchasing or renting land.

Farms with optimal marketing, higher yields, managed equipment cost, educated labor, specialized crops/ cattle markets /grain markets leading the industry with their insight, management and innovation /leadership that can compete with the best in the world.

Ben

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Farmland values in the Alberta regions experienced similar appreciation rates in 2017 as had occurred in 2016. As a whole, the indications across Alberta show an annual increase of approximately 8.5% on average across the province.

Farmland values in the Saskatchewan regions experienced variable appreciation rates in 2017 compared to 2016. As a whole, the indications across Saskatchewan show an annual increase of approximately 8.0% on average across the province.

Serecon is a group of Valuations and Appraisal, Management Consulting, and Farm Asset Management professionals who specialize in the agricultural industry. They conduct ongoing and regular research on the agricultural real estate market throughout western Canada. Their research and analyses are concentrated in the provinces of Alberta and Saskatchewan. Accordingly, the graphs indicate the annual change in the farmland value trend within the identified regions of each province.

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The current market environment is creating a dilemma for investors. On one hand, the economic picture remains bright: corporate earnings appear strong, unemployment is low and inflation, while rising, remains benign. On the other hand, warning signs abound:

We are in the midst of one of the longest bull markets in history: stock markets have enjoyed a 10-year upward run with few interruptions.

Stock prices, by almost any measure, are more expensive than they have been at any time in history other than just before the 2001 “Dot Com” crash.

Bond yields are rising, and interest rates are headed up (which is bad for stock prices).

Individual debts are at all-time highs and, more worryingly, margin debt (debt borrowed to buys stocks) is at unprecedented levels.

Bitcoin, blockchain and cannabis stocks are clearly in speculative bubbles.

Geo-political and international trade uncertainties abound, and (to put it mildly), the response of world leaders to any potential shock cannot be predicted.

In the last 34 years we have experienced five significant bull-market runs, four of which ended in large stock market declines or crashes. The first began in 1984 and ended on Black Monday in October 1987. The second started in 1994 and ended with the Asian Flu currency crisis in September 1998. The third began in late 1998 and ended in the Dot Com bust of 2001. The fourth started in March 2003 and ended with the Global Banking Crisis of 2008, and the fifth began in March 2009 and has continued until today, more or less uninterrupted for much of the past decade.

Just how exceptional has our current bull market been? Figure 1 provides some context. The previous 4 market cycles lasted an average of 29 months and saw the S&P 500 rise by an average of 97%. In comparison, our current bull market run has, so far, lasted an incredible 107 months and seen the S&P 500 rise by 354%

Figure 1: our current bull run is the longest in decades…

Figure 2: …and it takes a long time to recover after long bull runs

As Figure 2 indicates, it typically takes a long time to recover losses incurred in stock market crashes that have followed long bull runs. In the previous four cycles, the recovery period (ie. the length of time it took to fully recover the losses incurred from market declines) lasted 77% as long as the preceding bull market run – an average of 43 months. Recoveries from the Dot Com and Global Financial Crisis took significantly longer – 81 and 65 months respectively.

Simply put, it took between 5.5 and 6.7 years for investors to make up the losses they incurred in the previous two stock market declines.

What conclusions can we draw from these historic patterns?

We are surely in the latter stages of one of the longest bull markets in history, and the longer it goes on, the greater the risk of a significant decline.

At current equity valuations, future market gains will, almost certainly, be less than those of recent years and with interest rates increasing, bond returns are likely to decrease from recent levels as well.

As the prospect of further returns diminish, market risk is increasing – creating a poor risk/return outlook for both stocks and bonds.

Figure 3 illustrates how the current risk/return pattern has significantly changed from the past few decades. Using historic annual returns since 1990 for the S&P 500 and 10-year Treasury Bonds (all figures in US dollars without currency conversion into CAD), we estimated the stock-and-bond portfolio mix that would have produced a similar 10% total return as that generated by Canadian farmland over the same period.

January 17, 2018 (Chicago) – The Realtors® Land Institute and National Association of Realtors® Research Department released the results of their annual Land Markets Survey which shows a 4 percent increase in land sales and a 3 percent increase in land prices over the previous twelve months.

Sales for all types of land rose, indicating a strong national land market. In the lead were residential land sales with an increase of 5 percent, followed by commercial land sales up by 4 percent. Analysts in the NAR Research Department and at RLI believe these markets are in the lead because of the sustained economic growth and the continued recovery of the housing construction market due to an increase in new home sales.

Land sales for agricultural irrigated land also rebounded after contracting last year, as commodity prices generally stabilized from late 2016 to early 2017 after slumping since 2014. Responses from survey participants indicated a lack of land financing, tighter zoning regulations, and valuation issues as some of the biggest issues facing the industry.

RLI’s 2018 National President Jimmy Settle, ALC, said “Now is great time for landowners and investors as well as land professionals. With flat commodity prices making the growth in ag land sales modest compared to residential and commercial land sales, it’s encouraging to see the market as a whole still continue to strengthen.”

The annual Land Markets Survey is a tool for landowners and land real estate professionals in all sectors of the business to use for bench-marking and as an informational resource when conducting business. This year marks the fifth consecutive year that the survey has been conducted to reveal current trends and the ever-changing state of land markets within the industry; and with over 800 respondents this year, it continues to grow. The Realtors® Land Institute has made the full survey results available for free to the public on their website at rliland.com/about-realtors-land-institute/land-markets-survey

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Renting, Leasing or Crop sharing your land or farm is more and more common in Canada.

According to the latest data from Statistics Canada’s 2016 Census of Agriculture, farmersin Western Canada are renting more and more land. In Manitoba, farmers rent or lease 33 per cent of the farm / land, in Saskatchewan 28 per cent and in Alberta 42 per cent. They are are not all paying the same rental rates and they don’t all have the same rent or lease agreements.

How do farm & land owners and renters come to an agreement that provides security for the tenant, gives the landowner the return he or she needs, and encourages good management & stewardship of the land , buildings and/or equipment. ?